The New Zealand government’s proposed overhaul of the building and construction sector is generating significant discussion among insurance professionals, with many questioning whether the reforms will enhance or undermine protections for homeowners facing defective building work.
The reform package, advanced by Building and Construction Minister Chris Penk, is intended to streamline building consent processes and reduce the financial exposure of councils and ratepayers.
However, some sector specialists warn that the changes could leave homeowners more vulnerable to costly building failures if not carefully implemented.
Duncan Colebrook – director at Stamford Insurance, which provides New Zealand’s only insurance-backed builder’s guarantee – has expressed reservations about the direction of the reforms.
Colebrook, who has consulted with various governments on building sector policy, is particularly concerned by proposals to allow remote inspections and to let certain builders self-certify their own work.
“The victories of the past 20 years have been the improved training of inspectors and the stricter consent process. And I think it would be foolish to throw that away,” he said, as reported by 1News.
The criteria for designating a “trusted” builder remain unclear. John Gray, a homeowner advocate, referenced recent legal cases involving industry leaders who misused client funds, suggesting that self-certification could expose homeowners to greater risks.
A central element of the government’s proposal is to move from a joint and several liability model to a proportionate liability approach.
Under the current system, councils can be left to cover the full cost of building defects if other responsible parties are insolvent or unavailable. The proposed model would instead distribute liability based on each party’s degree of fault.
Penk has argued that this change would ensure accountability is more fairly assigned.
Data supplied to the Ministry of Business, Innovation and Employment (MBIE) shows that, between 2008 and 2018, councils and other consenting authorities paid out $332 million for defects caused by insolvent parties, and $668 million for their own inspection errors. During the same period, homeowners reportedly absorbed $458 million in losses.
Penk has pointed to Australian warranty schemes as a potential model for improved homeowner protection.
Critics, however, note that such schemes in Australia often provide limited coverage, with payouts capped and only available under specific circumstances such as builder insolvency or death.
Colebrook noted that the New South Wales cap of AU$360,000 may be insufficient for higher-value properties.
Meanwhile, the New Zealand Institute of Building Surveyors (NZIBS) has backed the move to proportionate liability, describing it as a fairer allocation of responsibility.
“We were clear that proportional liability is the fairest way to allocate responsibility in construction," said former NZIBS president Darryl August. "It ensures that those who actually cause the problems are the ones who pay to fix them.”
Despite supporting the principle, NZIBS has cautioned that proportional liability will require a more robust insurance market and higher professional standards.
August pointed out that in other countries, builders and contractors must maintain professional indemnity insurance, with warranties underpinned by insurance policies.
“New Zealand’s construction insurance market isn’t currently geared for that. Without those foundations, the policy can’t succeed,” he said.
August also suggested that the Licensed Building Practitioner (LBP) scheme needs review, as many practitioners may not meet the criteria for insurance eligibility.
“A lot of the current workforce wouldn’t meet the standard needed to obtain cover. That tells you the LBP system isn’t working as intended,” August said.
The government has yet to confirm the final details of its proposed changes. While officials maintain that reform is necessary to address persistent challenges in the construction sector, industry groups continue to advocate for mandatory insurance and higher practitioner standards to ensure homeowner protection is not compromised under the new regime.
The outcome of these reforms will likely shape the risk landscape for both insurers and property owners in the years ahead.
